Saturday

Death and Taxes

So, January is gone in one of those blink and you’ve missed it spurts of time. I love January. I spend the entire month of January full of New Year energy, eating well, working out more, removing credit cards from my wallet and attempting to hide them from myself as I have once again resolved to be Debit Not Credit for a full year. (Last year I made it until April when I broke down and bought really good concert tickets.) And, my favorite part of January, I get to file my taxes.

I love filing my taxes so much that this year on New Year Eve at the Furthur concert during the countdown spectacle – which was a woman in costume riding a huge, glowing, growling, smoke spewing dragon from the rafters of the venue down to the stage as The Rolling Stones “Start me Up” blasted from the sound system with thousands of people chanting “THREE…TWO…ONE…HAPPY NEW YEAR…” and then the band launched into “Sugar Magnolia” and I kissed my boyfriend heartily – a very small part of my brain was actually thinking, “I wonder how long it will take for my W-2 to arrive in the mail?” A larger part of my brain was also wondering when the bar outside our section would be closing soon and if I should fetch myself another drink to keep my perfect New Year’s buzz buzzing along for the third set. But let the record show, it was only several strokes past midnight on January 1st, and I was excited to file my taxes.

During the tenure of my nanny career, I have had those interviews where the family tries to convince me that paying me under the table would be to my great advantage. They would be able to afford a higher hourly rate, they would point out, if they did not have to be saddled with the huge burden of paying the amount of monies it would cost them to cover payroll taxes. Seriously, they make it sound like a fee imposed by the Mob. I have this theory about those who employ a Nanny. As it has been pointed out on this blog, having an educated professional come to your home to watch your child is the most expensive form of childcare, and as with dining out in a fine restaurant, if you can’t afford to do it right, don’t do it. I would never go out to eat, and then smile at the waitress and say, “Everything was excellent, but I cannot afford to leave you a tip. I’m sure you understand!”

If you are not being paid on the books, you are not paying into your social security or Medicare, there is no hope of ever receiving unemployment should you lose your job and there is no Workers Comp should you get injured on the job. Furthermore, your employers are not contributing to our nation’s economy by engaging in Black Market policies - yes - I did say Black Market, for if you are not reporting your income or paying taxes on your employee you are breaking the law and committing a crime. Wanna sleep well at night? Pay your taxes.

Now, about those pesky employers who suggest that you simply claim your own taxes by filing a 1099, I will retort with the argument that a Nanny is not an Independent Contractor, a Nanny is an employee. Independent Contractors use the 1099 tax forms. Employees do not. Independent Contractors generally set their own hours and decide their workload and tasks for the day. Does that sound like the general life of a Nanny? My employers sets my schedule and responsibilities, therefore, I am an employee. I spoke at length about this topic with a good friend of mine who is also an excellent accountant. He described one grey area to this argument. If I myself were to open a Nanny Agencies that ONLY placed Nannies on short-term assignments - say just for one day or one evening– at tax time those Nannies could file an entire slew of 1099 forms for all the jobs they did, as I had placed them as Independent Contractors. Additionally he explained, Employees who wished to file a tax return independent of that vexatious employer who is refusing to withhold taxes, they should turn to the schedule C section on the 1040 Unincorporated Business tax form, not the 1099. The Wikipedia website gives this quote regarding the 1099 tax form on their website: http://en.wikipedia.org/wiki/IRS_tax_forms:

“Form 1099 series is used to report various types of income other than wages, salaries, and tips (for which Form W-2 is used instead). Examples of reportable transactions are amounts paid to a non-corporate independent contractor for services (in IRS terminology, such payments are nonemployee compensation)”

Over the years as I evolved from the 1040ez form procured from the Post Office to doing my taxes online with Turbo Tax, I have learned several pointers about filing my taxes as a career nanny that result in a larger refund, and I would like to share them with you on this blog to assist my fellow Nannies during tax time.

Keep a car/gas log.What is one of the oldest complaints here on this blog? That the nanny does not get reimbursed for gas, repairs and wear and tear on their personal vehicle that they use for their job. If you were to begin a car and gas log right now and keep it for the entire year, next January you will have a record of exactly what you spent on gas for your job, and how many miles you drove for your job. With my position, I am incessantly on the go in my car. As the Nanny/ House Manager / PA for my family I am driving constantly, from picking up dry-cleaning to dropping off children picking up groceries to shuttling pets to picking up the children again. The Turbo Tax program walks you through your deductions, and the better records you keep, the better your tax return can be for you and your bank account. Look over your log and figure out the percentage that you are using your car for work. Save each and every receipt, for there are sections to report not only gas and mileage, but also oil changes, registration fees, and other general repairs. Keeping a log for your vehicle that you use for work will keep all your data accurate. Turbo Tax gives you the option as well to ask for a standard deduction for your vehicle, and my accountant friend suggests that this, as well as trying to get your employer to refund you for gas is a wonderful way to go. However, for the employee who does not get reimbursed, it is very good to know how to handle it for yourself. And, as we all know from reading the rants on this blog, a lot of nannies never get reimbursed.

Receipts, receipts and more receipts!What have you purchased in the last year to use for your job? Has your employer sprung a dress code on you? Did you procure a cell phone for your job? A computer? Finger paints? Lesson plans? Keep those receipts Nannies. A proper tax program will assist you in itemizing your deductions, but you’ll need to make certain that you’ve done your part in filing away your receipts in an organized fashion.

So, my fellow Nannies, I wish you all a wonderful and prosperous 2012, where everyone is paid on the books, properly reimbursed, maintain their receipts in an OCD fashion and has a proper W-2 in their fist next year. Let us all make a resolution to be treated like the professional that we are.___________________________________________________________________Rebecca Nelson Lubin is a Nanny and writer who resides in the San Francisco Bay Area. To see more of her Articles visit www.abandofwives.ning.com.

Hi Rebecca! Thank you so much for doing this research and have it posted for everyone's benefit. One reader was inquiring that I should submit my own but you did such a lovely and thoroug job I don't think it would be any more beneficial of I had one posted. So I will just comment on your post.

it will be beneficial to save your receipts regarding gas and miles. Please note however, that nannies are not 1099 income and therefor this type of expense is not tax eligable to be written off on your taxes. If you are getting 1099 income despite what the laws my be as some employers would not care to pay you correctly, your car repairs and gas are not eligable expenses. You are allowed to recognize your miles though. I think for 2011 you are able to take anywhere from $0.48 to $0.51 per mile. I will have to look this up to verify as this allowance factor is variable. When you go and get your oil changed your receipt should indicate your odometer reading. This is acceptable proof of miles allowed by the IRS. Your employer is allowed to pay you as a reimbursment but this will be taxed the same way you will be when paid your normal wages. If you are 1099 income and you have a contract that outlines your employer was supposed to reimburse you and didnt, you can report on your 1040 'unreimbursed employee expenses'

W2 income does not allow you take expenses. If you own a house your are intitled to recognize itemized deductions and this would be shown on a Schedule A. In this section you are also allowed to recognize your medical expenses. If you do not qualify for itemized deductions or you find it more beneficial to use your tax credits remember W2 income doesn't allow you to take work expenses.

And for all y0u wonderfully lucky nannies who receive bonuses, you will also need to report this as income. However, a bonus is taxes at nearly 40% and should not be counted as your regular pay.

This post struck me as very condescending. I hate to say it, but you kinda sound like a republican. "Black Market policies" "Wanna sleep well at night, pay your taxes" Wow, really? Despite what they say, at least half the nannies in the country are paid under the table, and I say if we are managing to screw the government, we should all be proud of ourselves!! Don't be so uptight and look down on those of us who are sick of being ripped off by uncle sam.

I love how republican is supposed to be an insult. If you don't want to pay your taxes, don't.Maybe you can write an article on all the reasons you shouldn't pay taxes and how we can get back at uncle sam by doing so.

I think you're being very immature, insinuating that she is condescending. Also, Republicans generally don't like taxes, if anything, I would say she is a good Democrat.

Paying your taxes will help you if you ever lose your job or get injured while working. Although the government may, in your words, rip you off, they help the country as a whole and will help you if you ever find yourself unceremoniously unable to work.

Hi Rude, Just so you know, I am a Marin County California dwelling old school Deadhead, extreme bleeding heart liberal left coast dwelling die hard democrat who happens to have mad respect for the law. Here's a fun fact: Anyone remember Lenona Helmsley? She went to jail for not paying her taxes. She was also married to my Grandfather Joe for about ten years before I was born. Not paying your taxes is a crime. Hey Phoenix! Turbo Tax allowed me to itemize all my deductions for my car. Just saying. xoxo.

I think bonuses are like tips...no one ever claims them as income. I used to work in a bar/grill and we got tons of tips at night, but were not required to report them to the IRS. My brother works in a car wash and gets daily tips, but they don't have to report them either. I have a friend who works at Starbucks and they have a tip jar that they split after shifts, etc. Tips are cash gifts as are bonuses.

If my employer gave me a Christmas bonus say of...$800 and I got it paid in cash, I would NEVER report it. I would just do what my employers want me to do and go on a tax/guilt-free shopping spree!!!!!!!!!!!!!!!!

I agree that many people get money that they keep off the books. Bonuses and tips are the way they get around them. I see tip jars at many coffee shops and fast food joints..I am sure the IRS does not get a cut of that. I even tip the pizza delivery guy in cash and no one but us knows how much I tip him.

Good column Rebecca. I would add that when you are paid on the books, the employer also pays into your social security and unemployment. Many nannies don't realize this. When employers pay under the table it is not to do you a favor. They are saving themselves money that should be going to your benefits.

actually you are supposed to claim "all" your bonuses. For example when people win a trip or something they are actually supposed to claim on their taxes the monetary value of the trip they earned. People don't typically do this and this is what I mean by not paying certain taxes. We all must pay into the state and federal and FICA. But I don't think that bonuses should be claimed. If they are large monetary dollars they should be. But if you are getting little bonuses like gift cards then I wouldn't worry about it. Also too, the way I would view it would be if your employer adds it to your income then just leave it as regular income to be taxed the normal way. But if your employer states that its a bonus paid out, then you will need to consider stating it as such. These usually don't pop up so much because people don't know they are supposed to claim their bonuses.

I have a question about taxes, hopefully someone who knows the answer will see this.

Basically, my current and former nanny positions had me paying SS, medicare, etc, but NOT income tax. At the end of the year, when I file my taxes I go ahead and pay my income taxes for the year then instead of getting a refund.

I thought this was pretty normal, but can't quite figure out if I'm "on the books" or not as such, and I never see anyone else mentioning this arrangement.

you are considered on the books. You employers are required to pay for the FICA taxes. But not your income tax. YOu can ask that they will take these out for you though. Have them give you a W4 to fill out and they will submit this to the IRS. If you are having your federal and state taxes taken out of your checks you will be getting paid less throughout the year but you will be paying less at tax filing time, perhaps even getting a refund. It is entirely up to you how you want to do it. But as it stands now, you are on the books and your employers were taking the proper deductions from your pay. They are also required to pay their share of FICA tax.

I like the info about taxes, and I know that for nannies, working on the books makes us look more professional, which gets nannying more respect as a job. This is the argument you need to use, some of the arguments people made here are not going to change anyone's minds.

People keep mentioning social security, I would stop bringing that up altogether. Most people assume that there will be no social security by the time we are ready for it. I know I'm not counting on it!

The phrase "because it's the law!" makes a lot of people roll their eyes and turn away. Most people I know would gladly work off the books if they had the chance, legal or not. It isn't the kind of law people obey automatically, like murder. Most people don't murder people because it is morally wrong to them, not because it's the law. People pay taxes because they can't get away with not paying them. It's a very different mindset.

If you really want to convince nannies(or other off the books workers) to file taxes, I suggest we stop attacking nannies, pushing the legality, and trying to tell them that they will actually be getting more benefits in the long run.

Pay your taxes as the laws stand right now it's a huge benefit to you. I know firsthand I worked off the books a short time last year and will now being dealing with a huge headache of fines if I decide to go for unemployment.

I agree that working "on the books" gives us Nannies a more professional respect. You can get use it as "legitimate" income for loans and job history. It also comes in handy when applying for unemployment, etc.

However, if a Nanny wants to work under the table I have no reason to be miffed. It's their lives and everyone is ultimately responsible for his or her decisions. I could care less.

a 1099 is better than a W2. But nannies by law are not supposed to be paid 1099. The gov't has very strict guidlines about this. Now most won't get caught if they file that way. But the gov't doesn't like it that nannies can take expenses when they report 1099 income, when in fact they are employees.

The difference as defined by the IRS. 1099 income represents someone who is a contract worker essentially and they are in charge of their own business and they make business decisions. W2 income are employees who do not make day to day decisions without a bosses consent, these would be the parents. So a nanny is an employee by definition and is not entitled to 1099 income.

And just because you don't think social security will be available to us when we are older does not mean the gov't has decided we don't need to pay taxes on it. You must still pay into social security and medicare

How exactly is a 1099 better than a W2? I don't see that paying 15.3% (13.3%? Does the payroll tax cut apply to self employed people?) of your 1099 income into SS/Medicare is better than paying 5.65% of your income into SS/Medicare.

because when you take 1099 income you are allowed to take business expenses on your taxes. A W2 you are not allowed to take any such deductions. So for instance if you were 1099 you could take certain deductions like your cell phone, in home office, business supplies like paper and computer equipment. When you take these expenses it reduces your adjusted gross income and many people are entitled to refunds. You still pay taxes with both but W2 income doesn't allow these types of expenses. So 1099 is the prefered way to get paid

I am not an accountant, but have filed our taxes for many years. I have also used a couple of different accountants during that time while I learned the process.

I have never heard anything remotely similar to the concept that anyone who receives a w-2 (i.e. is an employee) cannot deduct expenses. Many of us routinely deduct expenses. It is called itemizing deductions rather than taking the standard deduction.

This is a link that I jumped to from the irs site that talks about deducting business expenses AS AN EMPLOYEE: http://www.1040.com/federal-taxes/deductions/employee-business-expenses/

and another independent site describing the process and referring to your w-2 income. This one even refers specifically to common expenses nannies many incur such as car mileage:

http://taxguide.completetax.com/text/Q04_5200.asp

Phoenix, perhaps you are referring to other deductions that a self-employed, 1099 earner may take. But employees who receive a W-2, including nannies, absolutely can take many business/job related expenses including: cell phone, car, education or licensing costs, etc.

Where do you nannies who pay taxes find jobs? I've gone every route I can think of agencies, CL, SitterCity, Care.com, NannyPro, and I'll get people interested, offers made even, but as soon as the hear w2 the run for the hills.

I had an employer who worked as a 1099 employee, and what I best remember about that employer at tax time is his running around like a mad man trying to figure out how many square feet his home office was in relation to his home so he could determine what percent of his mortgage he could deduct as "office expenses".

As a W2 employee, I deduct professional expenses like membership fees and conference expenses, I deduct the difference in paid mileage and the IRS mileage rate, and I also get to deduct all sorts of stuff like health care expenses.

Frankly, since my employers provide all the supplies for my job, and provide my work space, and pay me for mileage, I wouldn't get much out of taking "business deductions".

Plus, I get to know my employers and I are following IRS rules about nannies being employees, not independent contractors. :-)

Bethany, I always make sure I tell them that if they pay me on the books, they get to claim the childcare tax credit. If I work under the table, they don't get the tax credit. That usually piques their interest. I also say how I want to make sure we do it right so neither of us get audited. I make sure to emphasize that no only could I get in trouble for not paying taxes but that they could get in trouble for not claiming me.

I know exactly what you mean Bethany. I never had even HEARD of nannies paying taxes until I came on this site. Parents on interviews would think I was nuts!No one even brings it up because it is a given that it will be under the table.

I think it must be a regional thing, maybe it is more common in some cities. From what I have seen, it seems like nanny taxes are more of an east coast thing, in the west, nannies, maids, dog-walkers, etc. are all paid under the table. I could be totally wrong, that is just what I have observed.

The last post was Anonymous, but here's what it said in case it gets deleted:

"Well if you're an undocumented nanny, why should you pay into a system from which you don't qualify to receive the benefits? Such as medicare, social security, unemployment. If you think I'm making this up, just google the requirements for each of those."

So true! My mom has a cleaning lady who is undocumented so my mom is happy to pay her under the table so she has a chance at a life.

This discussion is so ridiculous. Yes, paying nannies under the table is illegal, we all know this. That is not going to change the fact that approximately 85% of nannies are paid under the table. In most cases, neither the nannies nor the employers have any desire to change that situation. I'm not saying it is right or wrong, I'm just saying there is nothing I can do about it, because it is absolutely none of my business.

On this site, it seems that nannies are furious about nannies and employers who are ok with off the books. Why? How does it affect you? What I really don't understand is why people seem to think they can change this by being condescending and self-righteous about it. People are going to either stop listening, or be encouraged to do the opposite of what you want.

Basically, here is the gist of it: INSULTING PEOPLE ON A BLOG IS NOT GOING TO CHANGE THEIR MINDS.

On a related note...

Why is it that every nanny I have met in real life is paid under the table, yet almost every nanny who posts here *claims* to be on the books? I can't really believe that this site somehow only attracts the %15 of nannies who work on the books. Just sayin'.

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